25 Nov Early Financial Decisions (Disability Insurance, Retirement Accounts, Savings)

Physicians are notoriously bad at financial education because we have devoted our entire lives to learning medicine and depending on our individual life journeys, may have never held a full-time job until residency. Now is the time to educate ourselves on best financial practices so that we can be well prepared for anything ahead.

• Create a budget and financial plan, which can include anything from calculating the amount of necessary versus extraneous expenses, incorporating retirement savings plans into that budget, and establishing a financial plan.
  • Ideally, save 10-20% of your gross income towards retirement. Retirement can include vested and mandatory contributions
• Consider disability insurance
  • Why buy your own disability insurance? The residency program does have group disability insurance, but the definition of disability is harder to meet, and you want true own-occupation disability insurance, as well as your own policy that you can then bring with you wherever you end up working.
  • Obviously, sooner the better. But definitely buy before end of residency and starting attending-hood
  • Some things to be mindful of:
    • Find an independent agent not employed by one of the Big Five insurance companies. They will be able to shop all insurance companies for the best policy and deal for you, and you will only have to go through medical underwriting once. The more times you undergo medical underwriting and be rejected, the more difficult subsequent underwritings become.
    • Consider your riders, such as benefit increase option, COL adjustment rider, and a supplemental benefit rider if you still have student loans that will need to be incorporated into your budget.
• Retirement accounts
  • Spend time understanding your program’s retirement benefits and package
    • Ask senior residents and faculty who may understand the system better
    • Missing out of matched contributions is like leaving a part of your salary off the table
  • Most hospitals will offer a 403b – the public institution version of the 401k
    • Consider contributing to that in addition to required contributions if your budget allows
    • If given the option, choose the ROTH option
  • Open up a Roth IRA
    • Max contribution is $6,000/year
    • Money that grows in this account is tax-free when you withdraw at retirement age because you put in taxed money
    • That also means it is not subject to short-term capital gains – this is day traders heaven, though I don’t recommend day-trading
    • Best in residency because once attending salary kicks in, you are phased out of being able to contribute, unless you go through the backdoor ROTH. No big deal, totally legal, just more hassle.
• Student Loans – Have a plan
  • In the age of COVID, the pause keeps getting extended. While that’s great, don’t let down your guard and be unprepared if the government suddenly decides to no longer extend.
  • PSLF vs private refinancing
    • Choose forgiveness or pay off ASAP?
    • For those with private loans, PSLF unfortunately is not an option. Find private lenders (such as SoFi, Laurel Road… the ones that mail you every week) that also have a residency program (pay $100 or a low amount per month while in residency) and keep refinancing year after year to keep driving your interest rate lower and lower. And pay those off ASAP.
    • For PSLF, everyone in residency essentially has 3-4 freebie years of qualifying payments, so apply for an IDR (income driven repayment) plan and certify your employer as a 503(c) institution.
    • Submit the PSLF (or TEPSLF before October 2022) form every year to count how many payments qualify
    • Consolidate your federal loans as soon as possible, because the qualifying payment count resets at consolidation.
    • Set your payments to auto-pay – that shaves another 0.25% off your interest
• Quick word on taxes
  • Try doing them yourself or at least understand some terminology to be able to increase tax efficiency
    • Marginal vs effective tax rate
    • Gross vs Adjusted gross income
    • Tax deduction vs credit
• Couple other good habits to develop
  • Live like a resident and within or under your means
  • Try your hand at doing your own taxes before handing them off to a CPA
  • Pick one to two things each month or year to learn about regarding finances. Whether this is when is the best time to buy a house, how to start calculating your nest egg and how much to save, different savings accounts such as 529, HSA or FSA, developing an investment plan and assessing your own risk tolerance.
  • If learning about finances isn’t for you, find a trusted advisor who is familiar with the unique situation of physicians. In that case, consider fee-based advising instead of payments calculated based on assets under management (AUM).

Brandon Chavez, DO
Member, New York ACEP Emergency Medicine Resident Committee
Resident, SUNY at Buffalo

Joan Chou, MD
Member, New York ACEP Emergency Medicine Resident Committee
Resident, SUNY Upstate Medical University